Billionaire Zell Wins Bidding War for Tribune Co.

$8.2 Billion Deal Will Take Publisher Private

CHICAGO (AdAge.com) -- Chicago billionaire Sam Zell has won the bidding war for Tribune Co.

Photo: Bloomberg News

New owner Sam Zell has indicated in published comments that he does not intend to break up the company, whose assets include the Los Angeles Times, Long Island's Newsday and the Chicago Tribune, but he is parting with the Chicago Cubs.

Cubs for sale
The deal, announced by Tribune this morning, calls for Tribune shareholders to receive $8.2 billion, or $34 per share, in a deal that will take the company private. Tribune also said today that it will sell the Chicago Cubs and its stake in Comcast SportsNet Chicago, which it co-owned with the owners of the city's other major sports franchises.

Mr. Zell has indicated in published comments that he does not intend to break up the company, whose assets include the Los Angeles Times, Long Island's Newsday and the Chicago Tribune, as well as the flagship station group of the CW Network.

"I am delighted to be associated with Tribune Co.," Mr. Zell said in a statement. "As a long-term investor, I look forward to partnering with management and the employees as we build on the great heritage of Tribune Co."

The deal would end Tribune's 24-year run as a public company, a period that saw the company grow enormously through acquisition, building the country's largest independent TV-station group during the 1990s and acquiring the Times Mirror Co. in an $8 billion 2000 merger.

Tension with Wall Street
But while the equity from public shareholders fueled growth, it also created a new tension between the public-service obligations of newspapers and the quarterly-earnings expectations of their new stockholders. That tension became more pronounced in recent years, as media fragmentation driven by the internet and cable television accelerated newspapers' long circulation declines, and hurt advertising revenue.

Last year, those pressures led to the breakup of Knight-Ridder Co., and Tribune is now the second of what were then the three largest publishers to be sold in less than a year.

In recent months, the editor and publisher of Tribune's largest paper, the Los Angeles Times, were ousted in disputes over cost-cutting at the paper, while the Chandler family -- which sold the Times to Tribune in 2000 -- was warring with the company's board over its shares' moribund performance.

Those struggles may explain the company's appeal to Mr. Zell, who has earned the nickname "the grave dancer" for his penchant for buying distressed properties he thinks are undervalued.

Transitioning to digital
Proponents of the newspaper business note that, for all its struggles, its papers remain the dominant producers of local news content, and -- if online readership is factored in -- its audiences are growing. Once papers figure out how to make online readership worth as much as print readership, they'll be growth businesses again. But the trick, analysts say, is surviving the transition to that point.

In a statement, Tribune President-CEO Dennis FitzSimons said going private will give the company a better opportunity to address those challenges. "As a private company, Tribune will have greater flexibility to transform our publishing/interactive and broadcasting businesses with an eye toward long-term growth," Mr. FitzSimons said. He will remain on the company's board.

What's unclear is whether Mr. Zell will be able to keep the company's current collection of core assets intact, if he even wants to.

Federal Communications Commission rules passed in 1976 prevent cross-ownership of a newspaper and TV station in a single market. Tribune has been fighting to change that rule for the better part of a decade, and is operating such combinations with waivers in Los Angeles, New York, South Florida and Connecticut. It hasn't needed a waiver to own the Chicago Tribune and WGN-TV because its ownership of those properties predates the FCC rules.

Will sale invalidate cross-ownership?
Andrew Jay Schwartzman, president of the Media Access Project, one of the groups that have successfully fended off Tribune's desired rule changes to date, said he believes the sale could invalidate the grandfathering of the Chicago properties. Mr. Schwartzman said his group will oppose the entire transaction.

Tribune's top Washington executive, Shaun Sheehan, said it's a "potential possibilty" that the sale today will mean the company will now require a FCC waiver to keep its Chicago holdings together.

Mr. Sheehan said the company will argue that the sale to Mr. Zell -- a less-than-majority owner -- will not constitute a change in control. While that could be a tough case to make given the notoriety surrounding the sale, Mr. Sheehan said he ultimately expects the cross-ownership rule to be overturned, rendering the entire issue moot.

Wall Street seemed moderately pleased with the deal. Tribune shares rose about 2.8%, to $33 in heavy morning trading. Shares of fellow mega-publishers Gannett and New York Times Co. rose slightly, and McClatchy fell slightly, on a morning where the Dow and Nasdaq indexes saw small declines.

"They did OK," said veteran media analyst Edward Atorino. "Given the environment and the circumstances, and the long, drawn-out process, it's not a bad result."